In Early Post-JOBS Act IPO, Trulia CFO Chose Tougher Rules

Senior Editor

When Trulia Inc. was ready to file its initial public offering documents last May, it was one of the first companies to do so after the passage of the Jumpstart Our Business Startups Act a month earlier. But even though it was eligible to take advantage of relaxed standards under the law, the real estate website bypassed most of the new exemptions in order “to be just like every other public company,” according to its chief financial officer.

Sean Aggarwal, Trulia’s CFO, said the company had to make quick decisions about how it would use the new act, and chose only to use the provisions that allowed it to make its initial IPO filing confidentially. Under the law, so-called “emerging growth companies” can confidentially file offering documents with regulators and then make them public 21 days before they start their IPO roadshows.

“We were right in front of the new legislation – nobody had gone through it so we didn’t know how regulators would interpret it and we didn’t know how the public markets would interpret our decision to use or not to use the JOBS Act,” Mr. Aggarwal told CFO Journal in an interview.

Trulia

Trulia CFO Sean Aggarwal

As an “emerging growth company,” Trulia could have also taken exemptions on executive compensation disclosures, and delayed adoption of accounting and audit rules, among others, but chose not to do so.

Part of the decision to file confidentially, he said, had to do with the Trulia’s reasons for going public in the first place. When Mr. Aggarwal was hired in late 2011, the company’s board of directors was set on going public after rival Zillow had made its IPO earlier in the year. The board wanted to have a similar balance sheet to Zillow in order to better compete and make acquisitions, Mr. Aggarwal said. The confidential filing process benefited the company because its competitors did not have months to pore over its financial statements before it went public.

Despite concerns that investors might not have enough time to evaluate an IPO just three weeks before a roadshow, Mr. Aggarwal said it wasn’t a problem. “We must have met 300 investors on the roadshow and not once did anyone say they didn’t have enough time,” he said. However, he said Trulia has a relatively simple subscription business model, and investors were already familiar with similar companies. More complex businesses or those in fledgling industries may need more time making their case to investors.

Since confidential filings now outpace public ones, the pipeline has become obscured. Whereas in the past a company might have gotten a market intelligence report from its banks or information services, Mr. Aggarwal said that’s “gone out the window” with the JOBS Act. Bankers must now rely on more informal ways of determining the pipeline, he said.

When Trulia decided to go public in 2012, Mr. Aggarwal said it knew the year would really only have two windows for a successful IPO – in the spring when many companies decided to go public, and in the fall before the U.S. presidential election. After the market froze in the spring following Facebook’s IPO, Mr. Aggarwal said Trulia knew its chance to go public would likely be limited to three weeks in September. Given the small window, it was important for the company to know about the pipeline because it didn’t want to compete for investor attention with other IPOs.

“Everyone wants to be Cinderella at the ball,” Mr. Aggarwal said. Though he said visibility into the market wasn’t perfect, Trulia was able to get the intelligence it needed through bankers and its informal network before going public on Sept. 20.

Companies going public in the future, with less specific IPO windows, may face more difficulty. Some 80% of the bankers in a survey this week from BDO USA LLP said the lack of transparency caused by the JOBS Act’s confidential filings, was was hurting their ability to advise clients in the IPO market.

Comments (2 of 2)

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